Through years of working with foreign immigrant investors, we come across commonly asked questions that foreign investors may have about the U.S. tax system. Here, Karasik Law Group shares some basic answers about tax issues that can impact investors’ visa effort.
Q: When does an immigrant investor have a U.S. tax return filing requirement?
A: If an immigrant investor is a Green Card holder or meets the Substantial Presence Test (as defined in Internal Revenue Code), the investor is considered a U.S. tax resident. U.S. tax residents are required to file U.S. tax returns to report worldwide income and they are subject to foreign financial asset reporting requirements.
Note that investors who are nonresidents are still required to file U.S. tax returns to report any U.S.-sourced income received during the tax year.
Q: When are personal U.S. tax returns due for immigrant investors?
A: Federal individual income tax returns are typically due on April 15 of the following calendar year. Investors that live overseas typically qualify for an automatic two-month extension (usually June 15). Immigrant investors, just like any US taxpayer, can apply for an additional six-month extension that extends the deadline to October 15. While a taxpayer may extend the filing deadline, all taxes due on the income reported on the tax return must be paid by April 15 to avoid penalties and interest. Some states that have state income tax, have filing deadlines that differ from the federal filing deadlines and/or may not honor the June 15 automatic overseas extension. We recommend that investors consult with qualified tax consultants to make sure that their tax returns are filed correctly and in a timely manner.
Q: What happened when immigrant investors fail to file their tax returns correctly and in a timely manner?
A: U.S. taxpayers who fail to report their worldwide income and meet their foreign asset reporting requirements can face substantial penalties and interest. Filing the wrong tax forms may also cause the entire return to be invalid, thus compounding any interest and penalties incurred. While the standard statute of limitations available to the IRS for auditing a tax return is three years, the statute of limitations does not apply if a taxpayer never filed a tax return, or has omitted certain tax forms. In that case, the IRS has an indefinite period of time within which to audit a taxpayer.
It is important for immigrant investors to seek assistance from qualified tax advisors who understand the complexities involved in the investor’s green card process and the impact that certain investment income and filing deadlines can have on the tax status of the investor.